Render Unto Caesar

by Dave Rickey
2003-10-07

Note: Much of today's column was triggered by debate on the Terra Nova Blog, the contributors of
which have been involved in this issue for many years.

Commerce has set the mark of selfishness,
The signet of its all-enslaving power,
Upon a shining ore, and called it gold:
Before whose image bow the vulgar great,
The vainly rich, the miserable proud,
The mob of peasants, nobles, priests, and kings,
And with blind feelings reverence the power
That grinds them to the dust of misery.--Percy Bysshe Shelley

Nobody is quite certain when players of online games first started exchanging online game
items for real-world value. My
first exposure to it came when I traded a co-worker for his Ultima Online
Beta account, I offered to buy him lunch and we wound up at the Olive
Garden. One "Tour of Italy" later, and I was in possession of a UO Beta CD
and the associated keycode and login information (plus a handful of
characters and their items, which were wiped a week later). The fact that
the terms of use and NDA for the Beta specifically prohibited such transfers
never gave either of us a moment's pause, he had control of something I
wanted, and I found an incentive that was sufficient for him to pass that to
me. Since the long-term impact of that transaction was my finding a new
career, I would say I got a pretty good deal.

Players were probably arranging such deals in Roy Trubshaw and Richard
Bartle's MUD1. Perhaps somebody at the University of Illinois in 1962,
walking in to find both terminals of the original multiplayer computer game
Spacewar! occupied, traded a soda and a slice of pizza for a chance to take
over from one of the players. At any rate, the idea of placing value on
access to virtual-world goods is far from new. But just as the internet made
it possible for a formerly low-revenue business in online game services to
explode in 1997 when UO launched and overnight doubled and redoubled the
size of the market, it also made it possible for a low-volume trade in
collecting Pez dispensers to snowball into the multi-billion dollar
juggernaut that is eBay. And although it
probably shouldn't have been surprising, it took only a few weeks for the
two to converge and UO accounts to start showing up on eBay.

The first reaction of the community to this showed a split between wonder
and disgust. Some looked at what was happening and saw it as a betrayal of
the shared illusion of the game world. Others saw it as a validation of
those worlds, a sign that what happened in those worlds was as legitimate as
the events of the "real" world. And time has not changed this, there's still
a marked split in how the players think of eBay along basically the same
lines, between the purists who want eBay transactions stamped out and attach
a social stigma to participating in them, and those that embrace it and
engage in it regularly. Some make
quite a lot of money in the trade. But still, overall, the actual fiscal
impact of these transactions isn't that
significant. Where the US/European MMO market is over $200,000,000 per
year of revenue (and Asia is even bigger), it's doubtful that the secondary
market in items and characters is even as much as 10% of that. By the same
token, only a few thousand out of over a million accounts change hands
through eBay and similar sites.

So why is it a big deal if somebody sells a character or a virtual sword to
someone else? Why has this suddenly become such a hot topic of discussion?
Well, it's not really all that sudden, there's been an ongoing debate inside
of the industry over it since those initial eBay UO account sales. Attaching
dollar values to items and characters raises all kinds of ugly questions. If
your sword is worth $300 on eBay, and I as a developer decide your sword
must be deleted, I just made $300 of your net worth disappear; What's your
potential for action, can you sue me to make me give you back your sword?
What if the sword disappeared through a bug, is this negligence? What if it
was worth $300 because it was the best sword in the game, but I introduce a
better sword and the value of yours falls to $100?

This is not a set
of hypothetical situations; a company named Black Snow Interactive sued my
former employer, Mythic Entertainment, essentially because Mythic blocked
access to the "inventory" of Camelot currency that Black Snow was selling
through eBay and their own website.

What makes it worse is that your sword isn't a sword. It's a database entry
that looks like a sword inside of the game client. Flip a couple of bits,
and it isn't a sword anymore, it's a bundle of flowers or a pair of gloves.
The market may assign value to it, but that value didn't come from
anywhere. Neither did the item; I as a developer set up a system where a
database entry named "sword" was added to the system. I could make a million
more as easily as making just one (actually, the hard part is not making a
million by accident).

The part of the sword that has value is the idea of the sword, what you
can do with it within the context of the game, and the value you place on
that idea and those actions. So the value of the sword is indirectly derived
from the value you find in the game. Just as access to the UO beta was worth
a lunch at Olive Garden to me, and access to EverQuest is worth $12.95 a
month to hundreds of thousands even though access just grants you the
ability to manipulate database entries, what you are actually purchasing is
a promise from the seller to manipulate some of those database entries in a
way you find more favorable.

Now, I slipped a word into that paragraph above with some far-reaching
consequences, did you spot it? The magic word was "derived". There is
actually quite a lot of law and precedent concerning how to handle things
that lack inherent value, but rather derive their value from their
relationship to something else. You've probably heard of some of the
simplest forms of these: Stock Options. I've got stock options with my
current employer, and they're fundamentally pretty simple: my employer has
promised to sell me stock at a certain price. If the value of that stock
ever exceeds the cost of excercising my options, I can convert those options
into a windfall. There are some embellishments about how long I need to work
for the company, and what happens if I leave, but that's the core of it; the
value of my options derives from the value they may have in the future.
Other than, they're just pieces of paper. However, there are a variety of
ways for me to realize hard value from this potential future value, for
example if my options were already "above water", I could pledge them as
security against a loan that would be paid back only when and if they were
excercised.

By the same token, Player A's agreement to transfer control of a database
entry labelled "sword" to Player B is, from one point of view, a reflection
of Player B's belief that control of the "sword" will allow them to extract
more value from the game. And suddenly we've veered into very alien
territory. You see, an arbitrary database entry has legal value only in how
it is arranged and indexed, and the EULA you click on very clearly transfers
any value caused by your re-arrangement of the database entries to the
operator of the game (and before the BSI vs. Mythic case petered out, a
federal judge found that EULA to be valid and enforceable). But financial
instruments represent value, and the fact that the financial intrument is
a database entry doesn't change either the value or the ownership. Your bank
account isn't a stack of bills in the vault at your local branch, it's a
database entry in the computer system of that branch's corporate parent. I
used to work on such computer systems; my mother worked with them most of
her life. If game characters and items are ever held to be property in and
of themselves, it will almost doubtlessly be as some form of similar
instrument.

If you think online game design is a tough job now, imagine having to have
the design approved by the SEC and/or the Federal Reserve. And if the
database entry marked "sword" has real value, what is your tax liability for
getting one? If you kill the dragon and then /random for who gets the sword,
is that gambling (which is a whole kettle of legal fish in itself)? Before
you blow this off as purely hypothetical, I would point out that I was
informed by Peter
Friedman, a CPA from New Hampshire, that the IRS has already made the
value (or lack thereof) of an EverQuest account an issue in an estate case
(the IRS arguing that it had value for the purposes of estate taxes). This
stuff isn't going to stay theoretical for long. Sooner or later tax,
divorce, or inheritance law is going to make it of immediate concern.

Much stranger hypotheticals have turned into fait accompli before we even
noticed it had happened. For example when Edward Castronova, an Associate
Professor at CSU-Fullerton, wrote in his paper on Virtual
World economics that the average hourly wage for an EQ player (measured
as the composite increase of account value based on the eBay market) was
$3.42 cents an hour, many people commented on how this was higher than the
US minimum wage just a decade or so earlier. What we didn't notice was that
some had already figured this out, and set up in Mexico and
Russia, places with good internet connectivity and low wages, paying people
to play the games and accumulate this virtual value for sale on the open
market.

I would submit that if people are already making their living from "playing"
a game, and not a subsistence income but a living wage by the standards of
their community, and more than half of
the computer crimes in Korea involve online games, then while we have
been arguing over the ephemera of whether virtual communities were real and
if a "rape" can involve nothing but words between avatars in a virtual
environment, we have already crossed the invisible line on the slippery
slope to a very strange future.